Mutual funds are one of the best investment vehicles for people looking to diversify their portfolio and generate long-term wealth. Among all mutual funds, Equity Linked Savings Schemes (ELSS) stand out as an attractive option for investors with a long-term investment horizon. ELSS funds not only offer tax benefits, but also provide the potential of high returns. In this article, we will explore the best ELSS mutual funds available in the market that investors can consider for their investment goals.
Understanding ELSS Mutual Funds
ELSS (Equity Linked Saving Scheme) mutual funds have been gaining popularity among investors, especially those who want to save taxes. As the name suggests, ELSS funds invest mainly in equity shares, and the investment amount is eligible for tax deductions under Section 80C of the Income Tax Act. But, there’s much more to ELSS mutual funds than just tax-saving benefits.
What Are ELSS Mutual Funds?
ELSS mutual funds are open-ended equity-oriented mutual funds that have a lock-in period of 3 years. They are diversified equity funds that invest in a mix of large-cap, mid-cap, and small-cap stocks. The minimum investment period is 3 years, and investors can invest up to Rs. 1.5 lakh in a financial year to claim tax benefits.
Why Invest in ELSS Mutual Funds?
ELSS mutual funds not only offer tax-saving benefits but also provide an opportunity to earn potentially high returns by investing in equity stocks. They have a relatively short lock-in period of 3 years, which means investors can access their money after 3 years. ELSS funds have outperformed other tax-saving instruments such as Public Provident Fund (PPF) and National Savings Certificate (NSC) in terms of returns.
Types of ELSS Mutual Funds
There are mainly two types of ELSS mutual funds: dividend payout and growth options. In the dividend payout option, the fund pays out dividends to investors regularly. In contrast, in the growth option, the fund reinvests dividends to generate higher returns.
Factors to Consider While Choosing the Best ELSS Mutual Fund
Choosing the best ELSS mutual fund can be a daunting task, given the plethora of options available in the market. However, considering a few factors can help investors make an informed decision.
Fund Performance
One of the most crucial factors to consider while selecting an ELSS mutual fund is its past performance. Investors should analyze the fund’s performance over the past 3-5 years and compare it with its benchmark index to see how well it has performed.
Fund Manager
The fund manager’s experience and track record are essential factors to consider while choosing an ELSS mutual fund. Investors should analyze the fund manager’s investment style, the number of years of experience, and the performance of the other funds managed by him/her.
Expense Ratio
The expense ratio is the fee charged by the mutual fund company for managing investors’ money. A high expense ratio can significantly impact the investor’s returns. Therefore, investors should choose an ELSS mutual fund with a low expense ratio.
Asset Under Management (AUM)
The Asset Under Management (AUM) is the total value of the assets managed by the mutual fund company. A high AUM indicates that the fund is popular among investors, which can be a good sign. However, a very high AUM can also lead to fund manager’s challenges in deploying the money in quality stocks and managing its performance.
Top ELSS Mutual Funds in India
Here are some of the top ELSS mutual funds in India that investors can consider investing in:
Axis Long Term Equity Fund
Axis Long Term Equity Fund is one of the best-performing ELSS mutual funds in India. The fund has consistently outperformed its benchmark index and peers over the past few years. The fund has a diversified portfolio of high-quality stocks and a low expense ratio.
Mirae Asset Tax Saver Fund
Mirae Asset Tax Saver Fund is another top-performing ELSS mutual fund in India. The fund has a diversified portfolio of large-cap and mid-cap stocks and has consistently outperformed its benchmark index and peers over the past few years. The fund has a low expense ratio and an experienced fund manager.
Aditya Birla Sun Life Tax Relief 96 Fund
Aditya Birla Sun Life Tax Relief 96 Fund is one of the oldest and most popular ELSS mutual funds in India. The fund has a diversified portfolio of large-cap, mid-cap, and small-cap stocks and has consistently outperformed its benchmark index and peers over the past few years.
FAQs for Best Mutual Funds ELSS:
ELSS stands for Equity-Linked Savings Scheme, which is a type of mutual fund that provides tax benefits to investors. These funds invest primarily in equity and equity-linked securities and have a lock-in period of three years.
Why should I consider investing in ELSS mutual funds?
Apart from the tax benefits, ELSS mutual funds have the potential to generate higher returns compared to other tax-saving options like Public Provident Fund (PPF) or National Savings Certificate (NSC). Moreover, ELSS funds have a shorter lock-in period than other tax-saving instruments, making them a popular choice among investors.
How can I choose the best ELSS mutual funds?
When choosing an ELSS mutual fund, it is important to consider factors such as the fund’s past performance, expense ratio, investment strategy, and fund manager’s experience and track record. One can refer to various rating agencies or consult a financial advisor to choose the best ELSS mutual funds that align with their investment goals and risk appetite.
Can I invest in ELSS mutual funds online?
Yes, you can invest in ELSS mutual funds online through various platforms such as mutual fund websites, mobile apps, and online trading accounts. Before investing, you need to complete your KYC (Know Your Customer) process and link your bank account to your investment account.
What is the minimum amount to invest in ELSS mutual funds?
The minimum amount to invest in ELSS mutual funds varies from fund to fund. Typically, it ranges from Rs. 500 to Rs. 1000 for lumpsum investments and Rs. 500 per month for SIP (Systematic Investment Plan) investments.
What is the lock-in period for ELSS mutual funds?
ELSS mutual funds have a lock-in period of three years from the date of investment, which means you cannot redeem the investment before this period. However, you can continue to hold the investment even after the lock-in period ends.
Can I redeem my ELSS mutual fund investment after the lock-in period ends?
Yes, you can redeem your ELSS mutual fund investment after the lock-in period ends. However, if you redeem the investment within three years of the investment date, it will attract a short-term capital gains tax of 15%. If you redeem after three years, it will be considered long-term capital gains and taxed at 10% without indexation or 20% with indexation.